Diesel price hike will erode Rs. 2,700 crore of railway revenue

With the hike in the diesel prices for bulk purchases raised to the market price, the Railways have to cough up 30 per cent more on fuel cost and are staring at the spectre of another increase in rail charges, although the recent passenger hike is yet to come into force.

The government’s decision to do away with subsidy on diesel to bulk purchasers will impose an additional annual burden of Rs. 2,700 crore on the Railways. About 250 crore litre of diesel is consumed by the Railways to operate 70 per cent of its 65,000 km route.

The oil marketing companies have raised the diesel prices by Rs. 9.25 a litre for bulk purchasers for an actual burden of Rs. 10.8 after including other charges like VAT. Currently, the Railways dole out about Rs. 9,000 crore annually on diesel.

Only 30 per cent of the track has been electrified so far. Given the pace of electrification, the continued dependence on diesel will only compound the woes of the Railways, which are hard pressed to meet even the daily operating expenses.

The Railways will have to bear an additional burden of Rs. 550 crore in the remaining part of the current financial year, taking away almost half of the revenue of Rs. 1,200 crore Railway Minister Pawan Kumar Bansal has struggled to raise, by hiking passenger fares that will become effective from January 22.

Similarly, the annual burden of Rs. 2,700 due to the rise in diesel prices would leave little of Rs. 6,500 crore, which the Railways would be realising from hiked passenger fares for development purposes.

Last week, Mr. Bansal stressed that the revenue raised would be used for better amenities and passenger safety. While he ruled out any hike in passenger fares in his budget proposals for the next financial year and resisted freight rate hike to not render the Railways uncompetitive, Railway authorities said they would have to collectively consider the ramification.

The option would be to either absorb the hike or pass a part of it to the passengers. The recent hike in passenger fares was about 25 per cent over and above what was proposed, but withdrawn, in the budget proposals for 2012-13.

Tariff authority

Prime Minister Manmohan Singh had directed the Railways to put up the constitution of a Rail Tariff Authority for the consideration of the Cabinet, so that the body could automatically take note of the volatility in the prices of fuel and other inputs and make recommendations for adjusting the fares accordingly.

But the Ministry has not considered it necessary to meet that deadline.